Aug 1, 2011

So What Just Happened?

You have heard about the debt ceiling agreement reached yesterday. Here's what you may not have heard:

It is far from clear that this can pass the House of Representatives. Many Republicans members oppose increasing the debt ceiling. It will take Democratic votes but most Democrats in the House oppose the agreement. However, Wall Street appears to believe that this will pass since the market is up this morning.

If the bill does not pass, we are in default. Probably, the August 3 Social Security payments will go out on time -- probably -- but anything beyond that will be delayed.

The bill would cap domestic spending for the next 10 years. This means that it will be difficult for Social Security to get a larger budget or even to hold onto the operating budget it already has.

The bill, if passed, sets up a process whereby a special 12 member joint committee of members of both the House and the Senate will recommend measures in November to dramatically cut the budget. Congress will then vote on the recommendations on December 23. If the committee cannot agree or if Congress does not enact the recommendations, automatic budget reductions kick in. The reductions exclude Social Security and apparently exclude Supplemental Security Income (SSI) and other poverty programs. Medicare is excluded except for provider payments.

Unless Republicans on the joint committee are willing to include significant tax increases, I have a hard time imagining what the joint committee could come up with that Democrats would perceive as better than what happens if nothing is done and the automatic budget reductions kick in. After all, if the alternative is dramatic cuts in Social Security, Medicare, Medicaid, SSI, Food Stamps and Unemployment Insurance Benefits, what is so terrible about percentage cuts?

I have this vision of how this joint committee will work. Democrats will come up with one plan, Republicans will come up with another plan and the two sides will be unable to come to any agreement. The joint committee has a vote on the rival plans. They deadlock 6-6 on the Democratic plan. When the Republican plan comes up, one of the Democrats votes "present." This means that the vote is 6-5 in favor of the Republican plan and it goes forward. Republicans in Congress are then forced to vote to dramatically reduce Social Security and Medicare. The plan fails, the country is left with the automatic cuts, and Republicans have to explain their votes to dramatically cut Social Security and Medicare when the election comes up.

The question I wonder about is what would be the percentage reduction in appropriations for agencies such as Social Security if nothing is passed by December 23? I cannot seem to find the answer. Whatever the reduction is, furloughs at Social Security would be inevitable. Update: I am doing some very rough calculations and come up with a reduction in Social Security's operating budget of about 4% if no further agreement is reached. I am basing this upon the fact that the current agreement would call for $1.2 trillion in cuts over ten years. Divided by ten that would be $120 billion in cuts in this year's budget but that would be further divided in two between defense and non-defense spending and the Bloomberg business calculator figures on domestic expenditures-- although that is based solely on August 2011 expected expenditures, so I multiplied that by twelve. This is rough at best and there's certainly a chance that I have erred in some way. I hope someone can give us a more accurate number soon. A 4% cut in Social Security's operating budget would definitely cause furloughs and significantly reduced service but it would not cause the collapse of the Social Security Administration, at least in the short run.
I do not know what effect the planned National Computer Center would have on this. Suspending that project would certainly save money. Isn't there a vacant data center building in the D.C. area that Social Security could take over so it doesn't have to build from scratch? That would be quicker and cheaper. If that project goes forward despite what has happened, I think some explanations are in order.Further update: I am reading that the cuts in domestic spending will be delayed until 2013 -- after the Bush tax cuts are due to expire. If I understand correctly, that would save Social Security from any immediate cuts in its administrative budget. The end of the Bush tax cuts, which is certain to happen, at least in part, will help avoid cuts after 2013. If I am understanding this agreement correctly, there will be huge pressure on Republicans to agree to tax increases and little pressure on Democrats to agree to anything.

The SSA operating budget is the annually appropriated budget that pays for agency salaries, building rent, IT, office supplies, etc. Benefit payments are entirely different, coming from the FICA taxes and the SSA trust fund. The debt plan specifically exempts benefit cuts. Voters care about getting thier retirement checks, they care much less about the disability backlog or federal salaries. If there are across the baord percentage reductions, that would imply reductions in the operating budget, which is barely maintaining at a functional level as it is. The comissioner stated that the agency barely avoided furloughs during the CR/near shutdown ordeal. Any further cuts to the operating budget will result in reductions in OT hours first, quickly followed by furloughs.